Tag: Italy

In a sign that global populism has not died, the anti-euro 5-Star Movement proved popular among voters in southern Italy.
While the results of Italy’s election did not produce an official governing regime and can be seen as controversial to outsiders, the iShares MSCI Italy Capped ETF (EWI ), the largest Italy exchange-traded fund (ETF) trading in the U.S., is up 3.63% since the election.
(See also: Top 4 ETFs to Track European Stocks in 2018.)
The ETF’s performance is intimately tied to that of the Italian banking sector, as EWI allocates nearly 36% of its weight to financial services stocks.
Investors considering EWI should be mindful of any increase in political volatility because Italian stocks are already more volatile than broader European benchmarks.
EWI has a three-year standard deviation of 18.91% compared with 12.99% on the MSCI Europe Investable Market Index.
(For more, see: Reducing Volatility With Europe ETFs.) “Heightened political squabbling threatens to tilt back recently improved business and consumer confidence, which has stood up well to stagnant real wage growth, higher than normal unemployment and uncertain job security,” said Markit. “Nevertheless, the immediate impact on the economy is likely to be moderate, with political gridlock mitigated by low sovereign and private borrowing costs, alongside Italy continuing to exploit strong economic conditions across the Eurozone and the global economy.”
Since the start of March, the $725 million EWI has not added or lost any assets.

The populist party that scooped up the most votes in Italy’s election made a bold campaign promise: a guaranteed income of €780 ($960) a month for everyone.
But its most eye-catching policy is highly unlikely to happen.
M5S wasn’t alone in pushing the idea.
Former Prime Minister Silvio Berlusconi’s Forza Italia made a similar — but even more generous — promise of a basic “dignity income” of €1,000 ($1,230) a month later in the campaign. “My best guess is that they won’t be able to push it through,” said Jack Allen, European economist at Capital Economics.
Even if M5S managed to assemble enough votes in parliament, Italy’s massive government debt makes such an expensive policy unrealistic.
M5S said its basic income would cost €15 billion ($18.5 billion) a year.
Investors are also likely to be concerned about any increase in the budget deficit, because that would add to Italy’s debt, which already stands at 120% of GDP.
Manulife’s Greene said investors would likely demand a higher rate of interest in return for buying Italian government debt, and that would push up the country’s borrowing costs. “The Five Star Movement might find governing a lot more difficult than making big promises from the sidelines, much like other populist parties have found before,” she added.

The ICE U.S. Dollar Index DXY, -0.02% rose 0.2% to 90.089, rebounding from a 0.4% loss on Friday.
The dollar, which had been in focus over Trump’s comments on impending steel and aluminum tariffs late last week, has stepped back out of the spotlight, as traders focused on political developments in Europe.
The buck fell for two days late last week after Trump revealed the new levies, adding in a tweet that “trade wars are good, and easy to win.” On Monday, the president tweeted about the tariffs with respect to Canada and Mexico, indicating neither would be exempted unless a renegotiated Nafta deal is signed.
Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed.
Also, Canada must.. — Donald J. Trump (@realDonaldTrump) March 5, 2018 Meanwhile, the euro declined as it became clear the Italian election had produced no clear winner, but showed a surge in support for antiestablishment, euroskeptic parties.
The far-right Lega Nord was expected to come in third, just behind the ruling Democratic Party.
The result suggests a coalition will be needed for a government to formed, but none of the potential coalition groups appear to have enough support to avoid a hung government.
“Sweeping gains by antiestablishment, euroskeptic parties, such as the 5 Star Movement and the Lega Nord, highlight the discontent felt by Italians over high levels of immigration and unemployment in Europe’s third-largest economy.
• “A broad grand coalition would be well received by markets, as it could result in political stability and fiscal discipline.
“An antiestablishment alliance of M5S and Lega, the worst-case scenario for markets, looks unlikely due to different programs,” he added.

Scenarios now include the creation of a more euro-skeptic coalition, which would likely challenge EU budget restrictions and be little interested in further European integration, or swift new elections to try to break the deadlock.
A rightist alliance including former prime minister Silvio Berlusconi’s Forza Italia (Go Italy!)
emerged with the biggest bloc of votes, ahead of the anti-system 5-Star Movement, which saw its support soar to become Italy’s largest single party. ‘Be prepared for long and complex negotiations’ A prolonged political stalemate could make heavily indebted Italy the focus of market concern in Europe, now that the threat of German instability has receded after the revival on Sunday of a grand coalition under Chancellor Angela Merkel. “We will assume the responsibility to build this government, but in a different way, talking with all the parties about what this country needs.”
The ruling centre-left bloc was seen on around 22%. ‘Italy ungovernable’ During two months of election campaigning, party leaders repeatedly ruled out any post-election tie-ups with their rivals. “Di Maio wins, Italy ungovernable,” was the front page headline on the first edition of La Stampa newspaper.
We are going to have to reflect on this and find a response,” said senior PD politician Ettore Rosato.
There was much speculation that the PD leader, former prime minister Matteo Renzi, would step down.

Reuters The euro moved sharply lower on Monday, after initial projections in Italy’s general election showed euroskeptic parties did surprisingly well, indicating that none of the mainstream parties will be able to form a government.
That would be a major political upset, analysts said, raising concerns that Italy may now face months of political uncertainty and a fresh election.
What are currencies doing?
The euro EURUSD, +0.0649% dropped to $1.2288 from $1.2321 late Friday in New York.
Against the pound, the shared currency EURGBP, +0.0560% slipped to £0.8919, from £0.8927.
That move came as traders worried that President Trump’s plans for aluminum and steel tariffs will lead to a global trade war.
The 5 Star Movement — one of Europe’s largest populist parties — looked set to emerge as the biggest party, with around one-third of the vote.
The far-right Lega Nord was expected to come in third, just behind the ruling Democratic Party.
The dollar rebounded on Monday after falling for a second straight day on Friday.
• “A broad grand coalition would be well received by markets, as it could result in political stability and fiscal discipline.

Italy has a laundry list of economic problems: Young people struggle to find work, national debt is through the roof and banks are saddled with bad loans.
Growth has ticked higher in recent years, but not enough to satisfy voters who will go to the polls on Sunday.
Italy’s economy is still around 6% smaller than it was in 2008, before the European debt crisis exploded, according to UBS.
Investment is down 20% from its peak before the crisis.
More young people have found jobs in recent years, but a third of Italians between the ages of 25 and 29 remain unemployed.
There simply aren’t enough entry level jobs.
Mountain of debt Italy has struggled with a mountain of government debt for years.
Italy’s banking sector is also troubled. “Whichever parties form the next government, they seem unlikely to turn the economy around,” said Allen.
Business confidence surveys show optimism at its highest level in over a decade.

It has not been very hard over the last decade to make the case that Italy is a basket case, and one that investors should steer well clear of.
If the eurozone really is recovering, then Italy should be one of the major beneficiaries of that.
You can already see signs of that in the Italian markets.
The benchmark FTSE MIB index I945, -0.59% is up by 11% this year, and by 28% over the last 12 months.
France’s CAC-40 PX1, -1.09% is up by 7.5% this year and 20% for the past year.
Of all the major eurozone equity markets, Italy is already starting to pull ahead of the pack.
Can the Italian economy witness a sustained recovery?
First, it has started to clean up its banking system.
It is hard to say exactly how much of that money has flowed to Italy, but the country’s Target 2 balance with the ECB, which settles cross-border payments within the eurozone, has been growing dramatically month by month.
Italy, and especially southern Italy.

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